Pay to play is the practice of making campaign contributions and related payments to elected officials in order to influence the awarding of lucrative contracts for the management of public pension plan assets and similar government investment accounts. Advisers Act Rule 206(4)-5 prohibitions are intended to capture not only direct political contributions by investment advisers, but also indirect pay to play arrangements.
“The selection of investment advisers to manage public plans should be based on the best interests of the plans and their beneficiaries, not kickbacks and favors,” said SEC Chairman Mary L. Schapiro. “These new rules will help level the playing field, allowing advisers of all sizes to compete for government contracts based on investment skill and quality of service.”
The newly effective SEC rule prohibits 1. an investment adviser from providing advisory services for compensation to a government entity for two years, if the adviser or certain of its executives or employees make a political contribution to an elected official who is in a position to influence the selection of the adviser by that government entity, 2. an advisory firm and certain executives and employees from soliciting or coordinating campaign contributions from others for an elected official who is in a position to influence the selection of the adviser, and 3. solicitation and coordination of payments to political parties in the state or locality where the adviser is seeking business.
As of today, investment advisers must be in compliance with Rule 206(4)-5. This rule applies to all investment advisers who are either registered, required to be registered or are currently relying on the 15 client exemption of Section 203(b)(3) of the Advisers Act.
Advisers may be subject to other jurisdictions and regulations that may be even more restrictive than the Advisers Act rule and should take this into consideration when adopting policies and procedures to address the risks related to political contributions.
Please reach out to us if you need help drafting policies and procedures to address this rule or if you have any related inquiries.
